The good news about labor shortages

Paul Taylor, a contributing editor at POLITICO, writes the “Europe At Large” column.  

PARIS — As the coronavirus pandemic eases and national outputs near precrisis levels, the economic recovery across the Western world is now being constrained by labor shortages. 

The media is full of reports of a dearth of truck drivers, nurses, fruit pickers, cooks, waiters, hotel staff, cleaners and builders. But while employers may be wringing their hands, workers have some grounds to rejoice. 

Since the pandemic, the shortfall of job seekers has widened from the high-paying IT and digital industries to include lower skilled sectors such as tourism, hospitality, eldercare, logistics and delivery, as well as construction. And after more than two decades in which earnings have stagnated or regressed at the bottom of the ladder, while precarious jobs with worse employment terms and conditions have proliferated, the shoe may finally be on the other foot. 

“Frankly, this is a pay issue,” says Andrew Watt, head of the European economics unit at the Macroeconomic Policy Institute at the German trade unions’ Hans Böckler Foundation. “Wages will have to increase in these sectors to get people back into tough, low-paid jobs. That’s no bad thing.” 

As for the causes of the labor shortages, they vary from one country to another. Generous furlough benefits and part-time work schemes in European countries, and stimulus checks in the United States, have given many workers a financial cushion that may be delaying their return to the job market. 

Border closures and health-related travel restrictions have also disrupted the flow of seasonal and migrant workers who would normally fill some of the vacancies. Many migrant workers went home during the pandemic, and some are likely to stay there. 

Central European economies such as Poland, the Czech Republic, Slovakia and Hungary are close to full employment, with wages rising, drying up a major source of cheap labor for Western Europe. This helps explain the shortages of low-paid meat packers and hospitality workers in Germany and Denmark, as well as a pan-European squeeze on truck drivers. 

The U.K. government has inflicted a perfect storm of labor shortages through the combination of COVID-related travel restrictions and leaving the EU. Ending the free movement of workers from EU countries and adding red tape to crossing borders has disrupted food supply chains and left some supermarket shelves empty. 

A shortage of an estimated 90,000 truck drivers led to panic-buying and long lines at gas stations recently, forcing the British government to call on the army to help deliver fuel to empty pumps. Ministers belatedly announced plans last week to issue 10,000 emergency short-term work visas for truckers and meat packers in a race to ensure Christmas deliveries. 

Business leaders say the move is too little, too late, but Prime Minister Boris Johnson said Britain would not go back to “uncontrolled migration” to resolve shortages during what he euphemistically dubbed a “period of adjustment” following Brexit. 

Another factor in disrupted labor markets is lifestyle choices. After 18 months spent mostly at home, many people in Western countries are rethinking their work-life balance, the distances they are willing to commute and the kind of jobs they are willing to take. 

“Working from home and part-time could lead to more structural changes in behavior, but mostly in higher-paid jobs,” says Stefano Scarpetta, director for employment, labor and social affairs at the Organization for Economic Cooperation and Development (OECD). “Those working in low-paid jobs often have little choice.” 

Data collated by the OECD, which groups most of the advanced industrial democracies, shows that in its 38 member countries, about 20 million fewer people are in work than before the coronavirus struck. Of these, 14 million have exited the labor market and are classified as “not working” and “not looking for work.” Compared to 2019, 3 million more young people are not in employment, education or training.

The pandemic has also amplified trends that were underway before the crisis. For example, relatively well-paid jobs in main street stores are disappearing faster, as the online ordering of groceries and consumer goods has boomed, often creating lower quality jobs in remote logistics platforms, call centers and home delivery instead. 

While the data is too volatile to draw sweeping conclusions about a “new normal,” Scarpetta said there is anecdotal evidence that people are taking more time to look for better jobs and a better work-life balance after the pandemic. 

“The answer to all that, at the lower end of the pay scale, is to raise wages, to offer better conditions to attract more workers,” he added. 

For governments, the key policy lessons are to maintain cross-border labor markets; to target continued subsidies at sectors that are still facing restrictions due to health measures; and to promote investment in human capital, to facilitate a redeployment of labor from legacy industries, which will not return to pre-COVID levels of activity, toward future growth sectors. 

Recruiting more migrants from within and outside the EU should also be part of the policy mix, especially for countries with an aging workforce and shrinking population. For example, the head of Germany’s Federal Employment Agency, Detlef Scheele, told Süddeutsche Zeitung in August that the country will need to import 400,000 skilled immigrants a year to fill the growing gaps in its labor force, from nursing care to climate technicians, logisticians and even academics. That’s more than double the current net immigration figure. 

But the bottom line is a good one for workers. To recruit and retain staff, companies are going to have to compete harder, offering more attractive pay and conditions, be more sensitive to their employees’ work-life balance and providing better training and career paths. 

Far from being a problem, the current labor shortages may yet be an opportunity to rebuild a fairer economy, improve incomes down the employment chain and boost productivity. Rather than trying to reinstate the pre-COVID labor market, Western societies should seize the chance to fashion a new social compact.

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